Why You Should Care About Appreciation

Appreciation plays a pretty significant roll in buying a home. But instead of just telling that you why you should care, lets understand what appreciation is in the first place.

Appreciation – An increase in the value of an asset over time. The increase can occur for a number of reasons including increased demand or weakening supply, or as a result of changes in inflation or interest rates. This is the opposite of depreciation, which is a decrease over time.

In layman’s terms you should take those factors into consideration when choosing to either to stay as a renter or buy a home. In fact A $235k home becomes worth $485k at 3% appreciation after 30 years, but it becomes worth a whopping $649k at 4% appreciation. One percentage point makes quite a difference!

Other reasons why you should care about appreciation. The price of existing homes increased by 5.4% annually from 1968 to 2009, on average. (Natl. Assoc. of Realtors, p.1, p.2) Once we adjust for the fact that homes get bigger over time, the annual rate is 3.7%. The general rate of inflation during this time was 4.5%. So here again, homes didn’t appreciate faster than inflation.

Need more help unstanding how your house or land is appreciating? Contact a local investor or real estate agent.

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